• Home
  • Gallagher News and Insights

Part 3: Is Australia's construction industry headed for a cladding crisis?

August 21, 2019

Industry regulators are now reviewing construction standards frameworks with the aim of avoiding misunderstanding and misapplication of building codes relating to cladding. Stakeholders need to be abreast with these changes or run the risk of finding themselves in breach of these requirements.

is australia heading for a cladding crisis 6Immediate changes which took effect from 12 March 2018 in regard to fire safety in high-rise buildings were made to the National Construction Code (NCC) 2016 under the title Volume One Amendment 1. These changes were agreed between the Building Ministers Forum and the Australian Building Code Board (ABCB.

The changes include:

  • a new verification method (CV3) for testing that external wall systems do not contribute to the spread of a fire in Type A and Type B multi-storey buildings. This includes a new testing standard, AS 5113, that applies to the assembled product, not the individual materials
  • increased stringency for the sprinkler protection of balconies of residential buildings through referencing of a revised AS 2118 standard
  • a new requirement (A2.2b) for evidence that the use of a material, product, construction method or design meets the code’s Performance Requirement or Deemed-to-satisfy conditions.

“The changes look to limit any opportunity to misinterpret the intent of the NCC provisions and enhance the practice of establishing evidence of suitability by building practitioners,” Chief Executive Officer of the ABCB Neil Savery told Gallagher.

Applications for proposed changes to the next edition of the NCC, (due 2022), can be made on the board’s website, closing August 2020.

National consistency

After meeting with state and territory building ministers in July 2019 the Federal Minister for Industry, Science and Technology Karen Andrews announced ‘a nationally consistent approach’ to building industry safety standards, with a federal and state-funded ABCB implementation team appointed to oversee response to the Shergold Weir Report.

The 2018 report called for the establishment of a compulsory product certification system. The individual states will retain responsibility for rectification requirements, including replacing combustible cladding.

The Insurance Council of Australia spokesperson Campbell Fuller refutes the suggestion that insurance can in some way fund remediation costs, estimated at $1 billion in NSW, asserting the cost of rectification and compensation “should be borne by the sector responsible for the issues in circumstances where property owners no longer have an insurance-derived solution”.

The ICA envisages the establishment of a building industry-funded program to pay for rectification works and to compensate property owners caught out by the limitations built into defects liability regimes.

Duty of disclosure

is australia heading for a cladding crisis 7Construction companies involved in these types of projects, past, current and future, need to be aware that they are likely to be subject to a higher degree of scrutiny and accountability when seeking insurance.

“The industry should be prepared for insurers to make cladding materials a focus in relevant policies and also for increased premiums required to meet the need to amass a claims payment pool,” Gallagher general liability insurance expert Adam Sulway advises.

“It is essential for companies with cladding risk exposure, whether as contractor, supplier or consultant, to conduct a thorough audit of their historical projects and provide their insurers with notification prior to renewal,” adds Roger Irvine, Gallagher Head of Construction ‒ Australia and Asia.

Transparency and scrupulous care in compliance are the only ways forward. Gallagher’s brokers have the expertise and industry knowledge to formulate insurance solutions for complex construction projects and assist stakeholders with managing their risk exposures.

Need advice?

Gallagher brokers have the expertise and industry knowledge to formulate insurance solutions for complex construction projects and assist stakeholders with managing their risk exposures.

Speak with a construction specialist

Read Part 1 of our cladding series of articles here.

Read Part 2 of our cladding series of articles here.